Friday, February 5, 2016

"Economists React to January’s Jobs Report: ‘Leaves Open a March Rate Hike by the Fed’"

Following up on the market's reaction, which was sell everything, buy dollars:
DXY 97.01 up .46
From Real Time Economics:
The U.S. labor market slowed in January, with nonfarm payrolls rising a seasonally adjusted 151,000, the Labor Department said Friday. The unemployment rate fell to 4.9% last month, the first time below the 5% threshold since February 2008. Federal Reserve officials cited a healthy job market when raising interest rates in December, but the latest report may offer more questions than answers for policy makers. Here’s how economists reacted to the report.

“Although the 151,000 gain in nonfarm payrolls in January was a little below the consensus forecast of a 190,000 gain, the rest of the employment report was very encouraging, with the unemployment rate dropping to an eight-year low of 4.9%. Adding to the good news, average weekly hours worked edged up to 34.6, from 34.5, and average hourly earnings increased by a bigger than expected 0.5% m/m. Base effects mean that the annual growth rate of average hourly earnings edged down to 2.5%, from an upwardly revised 2.7%, but there does now appear to be a clear upward trend in earnings growth.” —Paul Ashworth, Capital Economics

“While we have not changed our view that labor markets remain healthy and, in turn, recession risk for the U.S. economy remains low, the weakness in services sector employment in the establishment report is likely to keep uncertainty about the state of the economy elevated. The divergent signals from the two labor market surveys, in our view, mean the [Federal Open Market Committee] will likely desire to see further evidence to know whether the signal from a strong household survey or a weaker establishment survey is correct. The divergent signal from the employment report, plus the ongoing volatility in financial markets, leads us to revise our outlook for the path of Federal Reserve policy; we now expect two rate hikes this year in June and December, as opposed to three in our previous baseline. —Michael Gapen, Barclays

“The rise in payrolls was well below the recent trend but we suspect most of the slowing merely reflects weather effects and payback for exaggerated strength in the fourth quarter. The three-month average is still a strong 231,000, which is more than enough to keep the unemployment rate trending down over time. That is not to say that the trend could not be changing significantly, but this report is not evidence of such a slowing given the above-trend gains in payrolls in the fourth quarter. Meanwhile, the 2.5% year over year for hourly earnings is up from what had been about a 2% trend. We still think the Fed will pause in March but these data help the case for renewed tightening before too long if markets calm down.” —Jim O’Sullivan, High Frequency Economics

“While we may not be there yet, this is the sort of report we would expect once the economy reaches full employment. Payrolls growth will eventually slow towards trend labor-force growth (which we estimate is around 100,000 per month). This should be associated with faster wage growth as employers compete for a smaller pool of available labor. So long as household income growth remains strong, the U.S. economy is likely to remain largely insulated from global economic stress.”—Jeremy Schwartz, Credit Suisse